Warning: Don’t fall foul of competition rules after CMA fines

The decision by the Competition and Markets Authority (CMA) to fine five estate agents for engaging in a price fixing cartel has sent a stern warning to the industry. 

Issuing further guidance, the CMA’s message is clear: be aware of the competition rules and take steps to comply, or else face the risk of investigation and sanctions.

However, this isn’t the CMA’s first investigation into the estate agency sector. Interest was sparked following earlier investigations which also identified illegal cartel behaviour. 

The first investigation, which concluded in May 2015, involved collusion between a number of estate and lettings agents operating in and around Fleet in Hampshire. The agencies agreed with one another that they would bargain collectively with the area’s local newspaper, the Star Courier, in relation to buying advertising space, and they agreed with one another not to include, in their respective advertisements in the Star Courier, details of their fees or commission rates, or make any direct or indirect references to their fees, commission rates, promotions, discounts or special offers, or any other value proposition. 

The CMA concluded that the agents had, in effect, agreed that they would not use their advertising in the Star Courier to compete with one another on price. 

The second and most recent investigation, on which the CMA has just published its infringement decision, relates to arrangements between six estate agents in Burnham-on-Sea in Somerset. 

The CMA found that, at a meeting in early 2014, the estate agents in question met to ‘have a chat about fees’. At the meeting, they agreed to charge sellers a minimum commission rate of 1.5% for residential property sales. 

According to the CMA’s findings, the businesses’ aim was ‘to drive the fee level up’ and make the agents ‘as much profit as possible’. To enforce the price fixing, the businesses even established a rota, taking it in turns to ‘police’ the cartel. 

The Burnham-on-Sea price fixing arrangements came to the CMA’s attention when one of the six cartelists blew the whistle to obtain leniency from fines and the CMA subsequently launched its investigation. 

The CMA concluded that the arrangements constituted an unlawful agreement and imposed fines totalling over £370,000. While those fines are, in competition law terms at least, fairly modest, they related to a local market that the CMA valued at only about £1.5 million. 

There are indications in the evidence presented by the CMA in its decision on the Burnham-on-Sea cartel that pricing discussions between estate agencies may be relatively common.

Perhaps with this in mind, the CMA is making efforts to publicise the case to the sector – with the implicit threat that it will conduct further investigations if it comes across evidence of further illegal conduct.

Again, the CMA’s message is clear. It expects all businesses, big and small, to be aware of the competition law rules and to understand what can and cannot be discussed between competitors. It encourages businesses to familiarise themselves with the rules and to seek legal advice if they have any concerns.

There are a number of simple steps you can take to make sure your business competition law compliant. 

Firstly, you should scope out the risks that you face. When do contacts with competitors take place? Who within your business has those contacts? What is it appropriate to discuss – and what topics do you need to be careful to avoid? Once the key ‘watchouts’ have been identified, your staff can be trained appropriately.

A related point that comes out of the CMA’s decision is the importance of knowing how to react if someone within the business receives an unsolicited approach from a competitor seeking to collude. 

One of the participants in the Burnham-on-Sea cartel argued that, while they had attended meetings with their competitors and had received related emails, they had not in fact participated in the cartel. 

However, the CMA dismissed that line of defence, saying that the company in question had not done enough to distance itself from the unlawful arrangements. Ensuring that staff know what to do if propositioned by a competitor is therefore just as important as ensuring that staff do not themselves initiate anti-competitive contacts with their competitors.

*Simon Barnes is a commercial partner and competition expert at Shoosmiths LLP, where he advises numerous large corporates and SMEs on competition regulation and breaches.